CPA Review vs. Independent Audit: Which Does Your Organization Need?

The Funding Thresholds

The first step is determining your aggregate Regional Center funding for the state fiscal year (July 1–June 30). Only Regional Center payments count toward the threshold — not grants, private-pay revenue, or other funding sources.

• $500,000 to $1,999,999: CPA Review required.
• $2,000,000 or more: Independent Audit required.
• Under $500,000: Generally exempt from the annual requirement — though you must still maintain accurate financial records. Exception: Work Activity Programs may owe a CPA review below this threshold under Title 17. Confirm with your regional center if you operate a Work Activity Program.

Side-by-Side Comparison

What is a CPA Review?

A review is a "limited assurance" engagement. The CPA performs analytical procedures and makes inquiries of management to ensure the financial statements are plausible and free of material misstatements. Unlike an audit, the CPA does not test individual transactions or independently verify balances with third parties.

Key characteristics of a review:

• No transaction testing: The CPA generally does not test individual invoices or bank entries.
• Analytical focus: The focus is on ratios, trends, and variances that might indicate a problem.
• Limited assurance: The report states that the CPA is "not aware of any material modifications" that should be made — the standard is negative (nothing came to attention), not a positive opinion.
• Cost: Typically 40–60% less expensive than an audit.

What is an Independent Audit?

An audit is a "reasonable assurance" engagement — the highest level of assurance a CPA can provide. The CPA must obtain evidence through transaction testing, physical inspection, and third-party confirmations.

Key characteristics of an audit:

• Detailed transaction testing: The CPA selects samples of transactions to verify accuracy and compliance.
• Internal control evaluation: The CPA must assess the design and implementation of your organization's internal controls.
• Confirmations: The CPA contacts banks, vendors, and sometimes the Regional Center directly to verify balances.
• Positive opinion: The report states that the financial statements "present fairly, in all material respects" the financial position of the organization — a positive assertion, not a negative one.
• Required 85/15 schedule: If required to have an audit, your CPA must include a supplemental schedule verifying your compliance with the 85/15 program spending rule.

Which One Should You Choose?

You don't choose — the statute chooses for you based on your funding level. What you can manage is your preparation:

• If you are near the $2M threshold: Do not plan for a review and hope you come in under. If your funding fluctuates and you might hit $2M by June 30, plan for an audit. Switching from a review to an audit midway through fieldwork adds cost and can cause you to miss your submission deadline.
• If you are comfortably below $500K: You are generally exempt. But keep your books clean — if your funding grows, the requirement triggers with it, and the nine-month clock starts running from that fiscal year end.
• If you operate a Work Activity Program: Confirm your threshold with your Regional Center. Title 17 requirements may apply below the $500K mark.

What a Clean Report Earns You

Both reviews and audits, when clean, can earn you a two-year exemption from the annual requirement — though the test is different for each engagement type. For a review, the test is whether the prior year's report found any issues affecting Regional Center services. For an audit, it turns on the opinion type. Either way, a clean report now also protects your Quality Incentive Program rate under AB 143.

How Guidepost Helps

We provide both reviews and audits for Regional Center vendors. Because we specialize in this niche, our process is streamlined and focused on the specific requirements of WIC §4652.5 — we are not applying a generic audit template to your engagement. That means less burden on your administrative staff and a faster path to the signed report.

Frequently asked questions

This article is general information about California Regional Center vendor audit requirements and is not legal or accounting advice for your specific situation. For guidance on your organization, contact a qualified CPA.